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Daily Market Report 16/12/2011

European Shares
European shares opened slightly higher following an Asian session of modest gains as investors were calmed by better than expected economic data from the other side of the Atlantic. The credit rating agency Fitch announced the downgrade of seven major Europe and US based banks, including Goldman Sachs, Deutsche Bank and Barclays, indicating that the European crisis is still far from resolved. Surprisingly enough the markets shrugged off the downgrade. The FTSE 100 is trading above 5,400 this morning. As we are now in the middle of December this tends to be the time that the bulls take the control for the Christmas rally. Price action is likely to consolidate in the last trading session of the week, before a fresh wave of risk aversion could trigger liquidation.
Forex market
Currency traders continue selling the US dollar as the currency sets multi-month peaks. Today the greenback could hit new peaks, yet fresh USD long positions look a bit risky. After posting huge losses earlier in the week the euro has consolidated at the $1.3000 area. Key support for the single currency comes in by the 2011 lows from January at 1.2870, which could well be tested over the coming week. Speculators quite often close positions into the illiquid final weeks of the year and start of the New Year, but with the European crisis lingering liquidity could remain high through the end of 2011.
Commodity market
The geopolitical tension around Iran is keeping oil prices supported at current levels despite growing worries about the global economy. Brent crude is trading above $104 this morning on worries about supply disruptions after the US Congress approved a bill that imposes sanctions on Iran’s central bank, limiting buyer’s ability to pay for the oil bought from the Islamic republic. Gold prices on the other hand rallied 1% today, after falling for four sessions straight, as sentiment was supported by a smooth Spanish bond auction and upbeat US jobs data. The precious metal is trading up at $1.591 at the time of writing. Investors are worried that the euro zone crisis will drag well into 2012 which may further boost the dollar and depress the yellow metal.
Today’s Calendar
The economic docket is thin on the ground today. Economic data to watch includes EU third quarter foreign trade figures at 10:00 GMT and US Consumer Price Index at 13.30 GMT. With Thursday’s US PPI showing a slight rise in inflationary pressure, mostly attributed to food and energy, we will probably not get a surprise today.

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